What's the spending review? It's the culmination of complex discussions between the Treasury and all the other Whitehall departments about how much money the government spends - and where that money goes. This year's review is particularly important for Labour, as it will provide much of the platform on which the party will fight the next general election.

But aren't all the big decisions taken in the budget? Not any longer. The budget - announced by the chancellor every spring - contains details about the government's taxation plans and is an important moment for the chancellor to make announcements about the economic climate, set out forecasts for key indicators such as inflation, economic growth and government income, and announce how much money the government aims to borrow or repay over the year ahead. But it's the spending review that really counts. That's when the chancellor announces how he intends to translate revenue into government action - such as new roads, extra police or new aircraft carriers for the Navy. And because spending reviews cover three years, rather than the one year covered by the budget, the reviews are a make-or-break moment for the government.

Why isn't there a spending review every year? There used to be, before Labour came to power - although it was known then as the autumn statement. But very few government projects are completed in a year and announcing spending annually created a culture that was erratic and short term. So when he became chancellor in 1997 Gordon Brown put spending on a rolling three-year programme that he hoped would allow departments to plan for the long term rather than having to bid each year for money to keep them going for the next 12 months. The new system - which began with a comprehensive review looking at all aspects of the way the government spends its money - is also much more interventionist than its predecessor. In return for extra money the Treasury demands that departments set out detailed plans for using the cash effectively, and then tracks whether they are living up to their promises through a series of performance targets agreed between the department and the Treasury.

Anything else? Mr Brown has also tried to improve the effectiveness of government spending by insisting that departments agree upon a set of performance targets they must achieve with the money they are allocated. The number of these had to be reduced after civil servants complained that there were too many. What's more, critics have claimed that they give the Treasury - and its so-called "dead hand" - an overly powerful role interfering in the activities of other departments, almost turning Mr Brown into the minister for every area of domestic policy.

So what should we expect? Despite the general election looming on the horizon, the chancellor has insisted that he will resist the temptation of a pre-election spending spree. Speaking to the confederation of British industry, he said: "There will be no short-termist quick fixes, no irresponsible spending sprees, a ruthless focus on priorities and no relaxation of our fiscal discipline." Having already announced generous allocations for health and education, he will have to limit department increases to less than 2.5% a year to live up to his "iron chancellor" reputation. The prime minister, however, hinted that the Ministry of Defence will escape the squeeze when he told a committee of senior MPs that he did not think that Mr Brown would cut the defence budget.